Servicing

Two senior members of the Senate Judiciary Committee support the Bush administration's effort to get lenders and servicers to freeze the interest rate resets on adjustable-rate subprime mortgages, but they still want to craft legislation that would allow the bankruptcy courts to provide relief for distressed homeowners.Sens. Richard Durbin, D-Ill., and Arlen Specter, R-Pa., said they support Treasury Secretary Henry Paulson's plan to increase loan modifications. "It can be done promptly and help people," Sen. Specter told reporters. He noted that it is difficult to pass legislation in the Senate. "We don't do anything fast around here," he said. Secretary Paulson's plan to freeze the interest rate on subprime mortgages will reduce defaults and rising foreclosures, Sen. Durbin said. But allowing bankruptcy judges to reduce the principal amount and interest rate on residential mortgages would provide more relief, he said, and encourage more loan modifications. Efforts to pass a similar bill in the House have stalled. The Illinois senator said he plans to redouble his efforts in working out a compromise with his Republican colleague. Sen. Specter said their talks so far have not produced much progress.

The Bush administration's plan to freeze resets on subprime adjustable-rate mortgages is flawed because it will not provide any relief for borrowers with credit scores above 660, according to the chairman of the House Financial Services Committee.Rep. Barney Frank, D-Mass., the committee chairman, said he welcomes the administration's effort to freeze ARM resets for five years. However, it is a "grave error that there is a cutoff at a 660 FICO score," he said. Rep. Frank argued that a credit score is not a good proxy for income and means that people who were careful with their credit may not qualify for relief. "I think it is a great mistake morally and politically," Rep. Frank said. Senate Majority Leader Harry Reid, D-Nev., called the administration's plan a "positive step" that could help about 200,000 people -- but said more needs to be done. Sen. Reid urged Republican senators to stop blocking a vote on a Federal Housing Administration reform bill that could provide refinancing options for troubled subprime borrowers.

Delta Financial Corp., Woodbury, N.Y., says it will file for bankruptcy protection after being unable to successfully securitize a mortgage loan portfolio.The securitization was key to the company's completion of a recapitalization (through the issuance of notes and common stock to an affiliate of Angelo, Gordon & Co.) that was announced on Nov. 15. At the same time, Delta had negotiated a standstill agreement with three of its warehouse providers. But because Delta could not do the securitization, the company's warehouse lenders notified the company that events of default had occurred. This subjected Delta to acceleration clauses under agreements making it subject to substantial payment obligations and causing it to incur cross-default claims from other creditors. The next domino to fall was the agreement with Angelo Gordon. Delta said it does not believe it can continue as a going concern, and it has suspended taking new mortgage loan applications. Delta said it is in discussions with parties interested in acquiring assets or operations in conjunction with a bankruptcy proceeding. But it added a disclaimer that the discussions are preliminary and no assurance can be given that a transaction will be completed. Delta can be found online at http://www.deltafinancial.com.

Two classes from two series of Chase Funding mortgage pass-through certificates have been downgraded by Fitch Ratings.Class IIB of series 2003-3 group 2 and class IIB of series 2003-4 group 2 were placed on Rating Watch Negative. Fitch also affirmed the ratings on 13 classes of Chase mortgage pass-throughs. The rating agency said the group 2 certificates in both series are backed by adjustable-rate loans chiefly secured by first and second liens or deeds of trust on residential properties.

Meanwhile, three other classes of GS Mortgage Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades in series 2005-SEA1 were as follows: class B-1, from BBB-plus to BB; class B-2, from BBB to B; and class B-3, from BBB-minus to CC/DR3. Fitch also placed class M-2 on Rating Watch Negative and affirmed the ratings on several other classes. Fitch said the downgrades were based on a deterioration in the relationship between credit enhancement and loss expectations. The collateral for the deal consists primarily of first- and second-lien residential mortgage loans.

Four classes of GS Mortgage Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings as a result of changes in the rating agency's subprime loss forecasting assumptions.The downgrades in GSAMP Trust 2005-S1 were as follows: class M-2, from A to BBB (and placed on Rating Watch Negative); class B-1, from BBB to CCC/DR2; class B-2, from BB to C/DR5; and class B-3, from BB-minus to C/DR6. Fitch said the updated subprime assumptions "better capture the deteriorating performance of pools from 2007, 2006, and late 2005."

Four classes of First Franklin subprime mortgage pass-through certificates, series 2005-FFH3, have been downgraded by Fitch Ratings.The downgrades were as follows: class B-1, from BB-plus to B-plus; class B-2, from BB to B; class B-3, from BB-minus to C/DR5; and class B-4, from B-plus to C/DR6. In addition, Fitch placed class B-4 of First Franklin series 2005-FF1 and classes M-9, M-10, and B of series 2005-FF5 on Rating Watch Negative and affirmed the ratings on 50 classes from five First Franklin transactions. Fitch said the rating actions were based on changes the rating agency has made to its subprime loss forecasting assumptions. Fitch can be found on the Web at http://www.fitchratings.com.

Twelve classes of certificates from six deals issued by Morgan Stanley ABS Capital I Inc. Trust in 2004 have been downgraded by Moody's Investors Service.Moody's has also confirmed the ratings on four classes from two of the deals. The downgrades were attributed to an analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to the expected loss. The transactions are backed by fixed and adjustable-rate subprime mortgage loans.

Forty-seven classes from mortgage securitizations issued by Residential Accredited Loans Inc. in 2005 and 2006 have been downgraded by Fitch Ratings.Fitch also placed 12 classes from RALI transactions on Rating Watch Negative, removed 15 classes from Rating Watch Negative, and affirmed the ratings on 46 classes. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral for the 18 deals consists primarily of first-lien, alternative-A residential mortgage loans.

Moody's Investors Service has downgraded 162 classes of primarily first-lien subprime mortgage-backed securities from five issuers.In addition, Moody's placed 39 classes of certificates on review for possible downgrade. Among the downgraded securities were 77 classes from 13 deals issued by Morgan Stanley; 59 classes from five deals issued by Bear Stearns; and 11 classes from two deals issued by Nomura. The collateral is experiencing higher-than-expected rates of delinquency, foreclosure, and real estate owned relative to credit enhancement levels, Moody's said.